What Estate Agents Should Know About the Cpa

WHAT Estate Agents SHOULD KNOW ABOUT THE cpa: ISSUES IN THE ACT THAT RELATE TO ESTATE AGENTS

The summary below is based on the Consumer Protection Act 68 of 2008 as published in the Government Gazette of 29 April 2009.

There still exists a possibility that amendments can be made to this Act before implementation on 1 April 2011. Certain interpretations have been made with reference to immovable property, which are very unsure in the minds of all the legal experts that I have consulted. We certainly trust that these uncertain issues will be sorted out before implementation.

Pam Snyman

1.General

The Consumer Protection Act 68 of 2008 was signed into law on 29 April 2009 and comes into effect in stages, with the first part having come into effect on 24 April 2010 including the basic franchise agreement requirements of Section 7 and the liability provisions of Section 61. The remainder of the Act is scheduled to come into effect on the 1st April 2011.

There is much emphasis on Auctions in the Act, which will not be discussed in this paper.

The Act regulates the relationship between suppliers and consumers. A “supplier” is defined as anyperson who supplies goods or services in the ordinary course of business. “Business” means the continuous marketing of goods (including property) or services to consumers. Suppliers in the property industry would thus include:

• Property developers
• Investors letting property on a continuous basis
• Investors who buy, renovate and sell houses as a business
• Estate agents
• Conveyancers

The Act does not apply to sale / lease agreements between persons who do not sell or let “in the ordinary course of their business”, such as individuals who occasionally sell or let properties.

Where the act applies, and the buyer has a claim against the seller due to defects (see paragraph 7 below) or any of his other rights under the Act, the buyer does not have to go to court, but has the option to either refer the matter to the National Consumer Tribunal, a relevant ombud, consumer court (tribunals which falls under the provincial governments), alternative dispute resolution agent or the National Consumer Commission.

Contraventions of the Act will be taken seriously and there is provision for hefty penalties for non-compliance. It is therefore essential that estate agencies consider their practices and agreements in light of the CP Act and adjustment them to ensure compliance.

2. Franchises

Section 7 of the Act, provides for Franchise Agreements to be in writing and signed on behalf of the franchisee. It must include any prescribed information and be in plain and understandable language. A franchisee may cancel the franchise agreement without cost or penalty within 10 business days after signing such agreement, by giving written notice to the franchisor.

3. Property Transactions

The Consumer Protection Act will only apply to a property transaction when the seller or lessee is acting in the ordinary course of his/her business. In terms of Section 5 (2)(b) this does not apply to legal entities with an annual turnover and asset value of under R3 million at the time of the transaction,but it does apply to all natural persons.

3.1 Direct Marketing

Direct marketing is defined as “…to approach a person, either in person or by mail or electronic communication, for the direct or indirect purpose of promoting or offering to supply, in the ordinary course of business, any goods or services to the person; or requesting the person to make a donation of any kind for any reason.

In terms of the Regulations pertaining to the Act, direct marketing may only be conducted on weekdays between 08h00 and 19h00, on Saturdays between 09h00 and 12h00 and is prohibited on Sundays and public holidays.

If the buyer has bought an immovable property as a result of direct marketing from one of the sellers as described in the example above, the buyer has a cooling-off period of 5 business days.This means the buyer may without giving a reason or paying a penalty, cancel the agreement within five business days of registration of transfer of the property,or if occupation takes place before transfer, on date of occupation, by sending a written notice to the seller.(This is clearly an untenable situation).

In the event that an estate agent approaches potential sellers for mandates, the above definition of direct marketing will apply. This means that mandates arising from direct marketing are subject to a cooling off right. The estate agent must inform the seller of his/her right and the mandate may be terminated in writing within five business days after date of conclusion of the mandate, by sending a written notice to the estate agent.

3.2 General Marketing of Immovable Property

Estate agents may not market properties, or administer property transactions using unfair, unreasonable or unjust techniques. They may not make use of misleading, false or deceptive statements, nor use exaggeration, innuendo or ambiguity. They may not discriminate unfairly or use physical force, undue influence, pressure, harassment or unfair tactics to close deal. Failure to correct ‘apparent misapprehension’ on the client’s part will be deemed a transgression.

A property may not be displayed for sale without displaying the price. (For Sale boards?). An asking price must be indicated, either on the property, or in the estate agent’s brochure or advertisement, or placed or published in a way that creates an association between the price and the property. All marketing material must be dated.

4. Property Developers

If a property is sold by a developer to a consumer to whom the Act applies:

• that property must be delivered to the buyer in compliance with all material aspects to any description, artist’s impression or plan that was provided to buyers before the sale. If, for example the buyer was introduced to a property by means of a show-house that is part of that particular development, the property purchased must be delivered to the buyer complying with all material aspects as contained in the show-house;
• and the buyer buys a property ‘off plan’ from a developer, the buyer may at any time cancel the transaction. This does not apply if the property is deemed to be ‘special-order goods’, for example where the buyer and the developer have agreed that the buyer’s home will deviate from standard plans or fittings provided as the norm by the developer.
• the developer is entitled to charge a reasonable deposit and, if the buyer cancels, charge a reasonable cancellation fee.

5. Unfair Contract Terms

A supplier as described in paragraph 1 above, may not sell or let property on terms that are unfair, unreasonable or unjust or at a price that is manifestly unfair, unreasonable or unjust. Such terms are prohibited in terms of the Act.

An example of a prohibited term would be a clause stating that the buyer would lose his/her deposit if the sale is cancelled for any reason that is beyond the buyer’s control.

As estate agents’ mandates are contracts between the agent and the consumer (seller), the same rule applies to estate agents’ mandates. In other words, an estate agent may not render services in terms of a mandate on terms that are manifestly unfair, unreasonable or unjust, and/or at a price (commission) that is manifestly unfair, unreasonable or unjust.

To decide if terms are unfair, a Court must consider a number of factors, including the fair value of the property/services; the nature of the parties to the transaction and their relationship to each other as well as the parties’ relative capacity, education, experience, sophistication and bargaining position.If terms are found to be unreasonable or unfair, a Court may make any order it considers just and reasonable in the circumstances, including an order to restore money or property to the consumer as well as to compensate the consumer for losses or expenses relating to the transaction.

In the event that the seller is deemed a supplier as per definition in paragraph 1, a buyer has a right to require a seller to take re-transfer of a property if the property is not of good quality, in good working order, free of any substantial defects, or not fit for its purpose.

This right is valid for six months from transfer and the buyer may return the property to the seller without penalty and at the seller’s expense and risk. The buyer has the choice to elect that the seller must refund the buyer or provide him/her with a replacement property. It is also at the buyer’s discretion to decide to keep the property and demand that the seller repair the defect. Traditional voetstoots clauses (see further discussion in paragraph 8), that address the buyer’s rights with respect to a property that is of good quality, in good working order, free of any substantial defects, and fit for purpose are prohibited by the CPA.

6. Fixed Term Contracts

The definition of a “fixed term consumer agreement” applies to both fixed term lease agreements and sole mandates (excluding leases and mandates where both parties are legal entities). In the Regulations pertaining to the Act, the Minister has specified that all fixed term agreement may not exceed 24months. The consumer has the right to cancel the agreement by giving 20 business days’ notice in writing, subject to the payment of a cancellation penalty.

Section 14(2)(c) states that if a consumer agreement is for a fixed term,the supplier must notify theconsumer in writing in not more than 80, nor less than 40 business days before the expiry date ofthe fixed term of the consumer agreement, of the impending expirydate, including a notice ofany material changes that would apply if the agreement is to be renewedor may otherwise continue beyond the expiry date; andthe options available to the consumer in terms of paragraph (d)”.

Section 14(2)(d) deals with the options available to consumers on expiry of the fixed term. It states that on expiry of the agreement, “it will be automatically continued on a month-to-month basis, subject to any material changes of which the supplier has given notice, unless the consumer expressly directs the supplier to terminate the agreement on the expiry date; oragrees to a renewal of the agreement for a further fixed term.”

The practical implication for estate agents is that the estate agent must inform the mandator in writing, before the expiry of a sole mandate of:

• the date on which the mandate expires
• changes (if any) that would apply if the mandate is renewed after the expiry date

in the event that the seller does not terminate the mandate on its expiry

• the fact that if the mandate has not been terminated by the consumer on the expiry date, the mandate will automatically continue on a month-to-month basis unless the consumer agrees to another fixed term.

This written notification must be sent not more than 80 and not less than 40 business days before the expiry date of the mandate.

7. Risk

Buyers are afforded protection in terms of the CPA with regard to the time, place and cost of delivery and how risk is allocated. This will be the default position unless the contract between the seller and buyer provide differently. Some attorneys recommend that the deed of sale specify that the buyer is liable for the costs of transfer, and that transfer takes place at the buyer’s risk. If that is not done, the transfer takes place at the seller’s cost and risk. The buyer has the right to cancel the agreement without penalty if the seller’s conveyancers tender transfer either earlier or later than specified in the deed of sale.

Financial institutions that provide finance to developers and base their risk evaluation on pre-sales of units, will have to relook this strategy with regard to individual buyers or legal entities under the R3 million threshold as they have the right to cancel the sale agreement or return the property to the seller.

8. Voetstoots

Voetstoots clauses as we have come to know them, may not be inserted into a contract of saleto which the act applies. This means that if a property is sold on occasion by an owner who is not in the property business, a voetstoots clause is still valid.

However, sellers acting in the ordinary course of their businesses (such as developers, etc) must insert a detailed clause in which they specify the condition of the property, dealing with both patent and latent defects*. If this clause has been agreed on by the buyer in writing, or the buyer has knowingly conducted him/herself in a way that is consistent with accepting the property in the agreed on condition, the seller will not be held liable to the buyer for the said defects. Attorneys recommend that sellers and their estate agents obtain detailed reports on all patent defects from home inspectors and attach these to deeds of sale.

It would be expedient to fully describe the property’s condition, by including the following:

• Its history (age / repairs effected and warranties)

• Current defects known to seller
• A general statement that the seller is not aware of any defects other than those disclosed, but that the property may or may not have additional defects (list: dampness, leaking roof, etc) having regards to its history and location
• A statement that the property is offered for sale on the basis and in the condition described above

9. Quality Service

Section 54(1) states that when a supplier undertakes to perform any services for or on behalf of a consumer, the consumer has a right to:

• the timely performance and completion of those services, and timely notice of any unavoidable delay in the performance of the services;
• the performance of the services in a manner and quality that persons are generally entitled to expect;
• the use, delivery or installation of goods that are free of defects and of a quality that persons are generally entitled to expect, if any such goods are required for performance of the services; and
• the return of any property or control over any property of the consumer in at least as good a condition as it was when the consumer made it available to the supplier for the purpose of performing such services, having regard to the circumstances of the supply, and any specific criteria or conditions agreed between the supplier and the consumer before or during the performance of the services.

If a supplier fails to perform service to the standards contemplated above, the consumer may require the supplier to either remedy any defect in the quality of the service performed or goods supplied, or refund to the consumer a reasonable portion of the price paid for the services performed and goods supplied, having regard to the extent of the failure.